The Ministry of Finance (MoF) has directed the Insurance Board (IB) - the insurance market regulator of Nepal - to ensure that insurers reinsure a major stake of issued policies with Nepal Reinsurance Company (NRC), the sole domestic reinsurance company.
“The provision was mentioned in the Budget and we have directed IB to implement it,” according to a report in the Himalayan News Service citing Uttar Kumar Khatri, chief of the Financial Sector Management Division of the MoF.
Indicating that the IB has to issue regulations to effect the requirement, he said: “IB is responsible for implementing the directions of the MoF and I hope it will come into force very soon.”
The Budget Speech for the current fiscal year, made last May, said: "Considering the fact that Nepali insurance companies are remitting a big chunk of money annually to foreign reinsurance companies for the purpose of paying premiums for reinsuring their business, a mandatory arrangement will be made for Nepali life and non-life insurance companies to reinsure a major share of their insurance policies at Nepal Reinsurance Company.”
The government had also announced that it would introduce plans to promote the insurance sector and expand insurance services across the country.
The 25 life and non-life insurance firms in operation in the country collected premiums worth NPR3.10 billion (US$30.4 million) in the fiscal year ended 15 July 2017, and a very nominal amount of that was reinsured at NRC. “A huge amount of capital is exiting annually to pay reinsurance premiums, so this should be minimised by reinsuring property with a domestic firm,” Mr Khatri said.
However, a high-level IB official said that the MoF’s directive cannot be implemented in this fiscal year. “Moreover, insurance companies are free to choose their reinsurance firm, and the government or the IB cannot direct them to provide business to any company. The reinsurance company should be able to collect the premiums from the insurance firms,” the official added.
The source also said that the capacity of NRC is very small and it cannot handle a huge amount of reinsurance from domestic insurance companies. “The capital base of NRC is not strong and it will not be able to repay the insured amount if any major natural calamity occurs in the country or if there is any major accident like a plane crash,” the IB official stated.
Basically, African and European reinsurance firms are collecting premiums from Nepali insurance firms.
The Nepali government established NRC in November 2014, in an effort to reduce huge outflows of funds in reinsurance.